10 key principles of operational risk management

10 KEY PRINCIPLES OF OPERATIONAL RISK MANAGEMENT

10 KEY PRINCIPLES OF OPERATIONAL RISK MANAGEMENTBy The RMA Operational Risk Council

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.Operational Risk Management Is Integral to Business Management

Risk management is an integral part of business management and should be incorporated into your overall business and financial planning.

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.Change Generates Risk

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.Incorporate Potential Risk outcomes

Develop budgets, profit goals, and profitability targets by fully incorporating potential risk outcomes and the expenses required to administer risk controls.

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.Reduce Systemic Risk Through ExperimentationEnforcing identical approaches by all participants increases systemic risk.

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.the Operational Risk Framework

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.Risk cultureRisk appetiteCommunicationsGovernance, policies, and proceduresRisk identification and assessmentControl environmentMonitoring and reportingQuantification, measurement, and modelingRisk decision-makingIncentivizing behaviors

1. Risk Culture

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.1. Risk Culture (cont.)

Your business culture must embrace the value of risk escalation and welcome independent challenge of risk decisions.

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.1. Risk Culture (cont.)Solicit multiple points of view and engage in debate to get better, more informed decisions.




Develop and implement training and education programs to ensure that your business cultures key principles are properly understood and consistently applied.

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.2. Risk Appetite

Develop and implement a risk appetite statement and relevant thresholds and limits based on your institutions business model and tolerances.

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.2. Risk Appetite (Cont.)

Consider internal and external risk drivers and constraints.

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.3. Communications

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.4. Governance, Policies, and Procedures

Ensure accountability through an effective governance structure that oversees your institutions risk and control environment.

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.4. Governance, Policies, and Procedures (Cont.)

Senior management should provide direct oversight of current and emerging exposures..



Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.4. Governance, Policies, and Procedures (Cont.)Effective risk management is a basic responsibility of business leaders and managers, requiring them to:


Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.5. Risk Identification and Assessment

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.6. Control Environment

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.6. Control Environment (Cont.)

Business management owns all risk mitigation activities within their respective span of operations.

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.6. Control Environment (Cont.)The line of business uses the controls assessment framework to identify and document key controls.



Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.6. Control Environment (Cont.)Risk management activities dictated solely by remote oversight functions lacking detailed execution experience are highly prone to error and inefficiency.

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.7. Monitoring and Reporting

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.7. Monitoring and Reporting (Cont.)

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.8. Quantification, Measurement, and Modeling

Follow a structured methodology for establishing and prioritizing the risk management process universe and performing risk assessments based on inherent risk level.

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.8. Quantification, Measurement, and Modeling (Cont.)

When evaluating the risk level in a given activity, consider historical results over long periods to be an important indicator of future results, particularly if the fundamentals of the business activity and management approach have not changed.


Use data for analysis and modeling to support sound operational risk management practices and business decisions.


A modeled approach is best suited to transactional-style risks with sufficient data points (tail-style conduct risk issues do not model well).


Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.9. Risk Decision-MakingAs part of sound business and strategic decision-making, assess and consider operational risk implications to determine whether to:

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.10. Incentivizing Behaviors

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.The Operational Risk Council promotes sound practices in the management of operational risk in financial services institutions worldwide. It promotes understanding the causes, events, and effects of operational risk through the dissemination of sound risk management methods, tools, and materials. In support of its mission, the council also sponsors research, facilitates links between the industry and regulators, and advocates the professional development of all those engaged in the management of operational risk.ABOUT RMAS OPERATIONAL RISK COUNCIL

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.Share This Presentation

Visit http://www.rmahq.org for information on risk managementRMA is a member-driven professional association whose sole purpose is to advance sound risk principles in the financial services industry.RMA helps its members use sound risk principles to improve institutional performance and financial stability, and enhance the risk competency of individuals through information, education, peer sharing, and networking. Become a member today.

Enterprise Risk Credit Risk Market Risk Operational Risk Regulatory Compliance Securities Lending#JOIN. ENGAGE. LEAD.

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10 key principles of operational risk management

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